Opinion
No. 85-438
Decided February 19, 1986.
Taxation — Sales tax — Tangible personal property used or consumed in preparation for market and sale of printed matter — Exemption — R.C. 5739.01(E)(8).
O.Jur 2d Sales Use Tax § 21.
Tangible personal property used or consumed during the preparation and production for market and sale of printed matter is excepted from Ohio sales tax pursuant to R.C. 5739.01(E)(8).
APPEAL from the Board of Tax Appeals.
Dayton Press, Inc., appellant, a Florida corporation, is engaged in the business of printing magazines such as McCall's, Redbook, Ladies' Home Journal, Reader's Digest, Newsweek, U.S. News World Report and Forbes. All of the activities associated with the printing of these magazines are conducted at a printing facility located in Dayton, Ohio.
Dayton Press utilizes three types of printing processes. These processes are letterpress, offset and rotogravure. In letterpress and offset printing, plates are prepared for use on the cylinders of a press. Dayton Press makes its own plates in its Dayton printing plant and the process by which the plates are made is commonly referred to as "prepress." These plates are taken to the press and locked on the various cylinders. In rotogravure printing, the actual cylinder, rather than the plates, is prepared as the printing medium. The rotogravure cylinders are manufactured for Dayton Press by an outside supplier located in Milwaukee, Wisconsin.
After the letterpress plates, offset plates or rotogravure cylinders are prepared, they are physically attached to a press. All of the presses used by Dayton Press are web presses and, whether the press is letterpress, offset or rotogravure, the basic operation of the press and the functions it performs are the same.
The web press and its related equipment perform four functions. Large rolls of paper are brought to the press and mounted on roll stands. The paper is then fed through the printing cylinder units where the ink is actually printed on the paper. After the web of paper comes off the printing cylinders it is fed through a drying oven where the ink is dried onto the paper. From there it is fed through an area where the paper is cooled before it reaches the folder. At this point, the web of paper is folded to become a "signature." A signature consists of two to sixty pages of a magazine. The signatures are then placed in cages called "cargo containers." The cargo containers are taken to the work-in-process area where the number of signatures is calculated and where the containers are stored temporarily prior to shipment to the bindery.
The Tax Commissioner, appellee, levied an Ohio sales and use tax assessment against Dayton Press upon certain equipment, parts and supplies used or consumed by Dayton Press in its various printing operations. Pursuant to a timely filed petition for reassessment, a hearing was held by the Tax Commissioner and the sales and use tax assessment levied against Dayton Press was affirmed. Following this, Dayton Press appealed to the Board of Tax Appeals ("BTA"). The two basic contentions of Dayton Press that were argued before the BTA and that are now the subject of this appeal are as follows:
"(1) * * * The Tax Commissioner failed to properly apply the plain language of R.C. § 5739.01(E)(8) to the purchase of equipment, parts and supplies used and consumed by Dayton Press in the production and preparation of printed matter in suitable condition for market and sale.
"(2) * * * The Tax Commissioner erroneously concluded that the construction of a propane tank farm and related equipment and the construction of an oil storage tank and piping did not constitute construction contracts. * * *"
The BTA affirmed the tax assessment in its entirety. The board held that the production and preparation of printed matter in suitable condition for market and sale did not include all of the necessary and successive steps performed by Dayton Press in its printing operations. At the same time, the board failed to rule on the second contention of Dayton Press that the installation of a propane tank farm, waste oil storage tanks; and oil piping constituted construction contracts pursuant to which items of personal property became incorporated into real estate.
Dayton Press filed a timely appeal of the board's decision to this court under the provisions of R.C. 5717.04, alleging that the decision was both unreasonable and unlawful.
The cause is now before this court upon an appeal as of right.
Porter, Wright, Morris Arthur and Ted B. Clevenger, for appellant.
Anthony J. Celebrezze, Jr., attorney general, and Mark A. Engel, for appellee.
Stanley J. Bowers, Baker Hostetler, Kiehner Johnson and Edward J. Bernert, urging reversal for amicus curiae, Printing Industry of Ohio.
This case involves this court's initial review of R.C. 5739.01(E)(8) which grants a sales tax exemption to items used or consumed in the production of printing matters. We have previously reviewed the manufacturing exception in what is now R.C. 5739.01(E)(2) in R.R. Donnelley Sons Co. v. Porterfield (1972), 30 Ohio St.2d 219 [59 O.O.2d 260]. In Donnelley we held that items used in the composing room and in the operation of offset plate making were subject to tax on the premise that such items were consumed prior to commencement of the actual press work.
R.C. 5739.01(E) provides:
"`Retail sale' and `sales at retail' include all sales except those in which the purpose of the consumer is:
"* * *
"(2) To incorporate the thing transferred as a material or a part, into tangible personal property to be produced for sale by manufacturing, assembling, processing, or refining or to use or consume the thing transferred directly in the production of tangible personal property, except printed, imprinted, overprinted, lithographic, multilithic, blueprinted, photostatic, or other productions or reproductions of written or graphic matter, for sale by manufacturing, processing, refining, or mining, including without limitation the extraction from the earth of all substances which are classed geologically as minerals, production of crude oil and natural gas, farming, agriculture, horticultural, or floriculture, and persons engaged in rendering farming, agricultural, horticultural, or floricultural services, and services in the exploration for, and production of, crude oil and natural gas, for others are deemed engaged directly in farming, agriculture, horticulture, and floriculture, or exploration for, and production of, crude oil and natural gas; or directly in making retail sales or directly in the rendition of a public utility service, except that the sales tax levied by section 5739.02 of the Revised Code shall be collected upon all meals, drinks, and food for human consumption sold upon Pullman and railroad coaches;
"* * *"
Following the announcement of Donnelley, the General Assembly amended R.C. 5739.01(E), removing printing from the manufacturing exception, omitting direct use as a limitation to taxation, and adding the phrase "production and preparation in suitable condition for market and sale" to delineate the excepted functions relating to printed matter. The Tax Commissioner suggests that these amendments had no effect on the vitality of Donnelley. This posture is plainly untenable.
We hold that tangible personal property used or consumed during the preparation and production for market and sale of printed matter is excepted from Ohio sales tax pursuant to R.C. 5739.01(E)(8). Likewise, the unloading and storing of raw materials, transportation thereof and the printing of the paper along with the binding and shipping of the final product constitute continuous activities necessary for the preparation for market and sale. To hold that the purchase of tangible personal property used or consumed during the aforementioned process should be subject to sales tax would simply repeal a clear-cut legislative mandate.
We should always give language contained in a statute involving taxation its plain and ordinary meaning. See Youngstown Club v. Porterfield (1970), 21 Ohio St.2d 83, 86 [50 O.O.2d 198]. "Production" as used by the General Assembly encompasses four major steps as it relates to printed matter. The first involves art and copy preparation; the second involves conversion of the copy into a printing image; the third consists in the press work; and the fourth and final step involves binding and finishing. Strauss, The Printing Industry (1967), at 43. Thus, we must hold that this aspect of the decision of the BTA is contrary to law and must be reversed.
Dayton Press next argues that the BTA erred in its treatment of Dayton Press' acquisition of certain systems involving rail cars, oil piping, waste oil storage tanks and propane tanks. The Tax Commissioner concedes that the board simply failed to determine whether these systems were incorporated into the taxpayer's realty. While there may be merit to the argument that these systems were incorporated into improvements of appellant's realty, we must remand this matter to the board for determination in accordance with the practice endorsed in Towmotor Corp. v. Lindley (1981), 66 Ohio St.2d 53 [20 O.O.3d 43].
See Pittsburgh-Des Moines Steel Co. v. Lindley (1982), 1 Ohio St.3d 15.
Thus, the decision of the BTA is reversed in part and the cause is remanded in part for further proceedings.
Judgment accordingly.
SWEENEY, HOLMES, C. BROWN and DOUGLAS, JJ., concur.
CELEBREZZE, C.J., and LOCHER, J., dissent.
The majority has construed R.C. 5739.01(E)(8) so as to create a virtually limitless exception from the Ohio sales tax for Dayton Press and other members of the printing industry.
R.C. 5739.01(E)(8) does create an exception for items used or consumed in the production and preparation for market and sale of printed matter. It does not, contrary to the thrust of the majority opinion, create an exception for those items which are used only in pre- or post-production of printed matter.
If one looks at the items assessed as taxable by the commissioner in the instant case, it is apparent that many of these items were not used or consumed during production or preparation for sale but rather were merely supportive of the overall printing process and, thus, were beyond the scope of the specific exception contained in R.C. 5739.01(E)(8). A non-exhaustive list of items utilized either before production had begun or during cleanup after production had taken place include:
1. Cylinder racks, blankets and crates, pallet trucks and maintenance stockroom materials, all utilized for storage purposes.
2. Various sweepers, vacuum cleaners and floor scrapers used to clean up the facility after production of printed material had taken place.
3. Monitoring equipment used as a diagnostic tool and to train new employees.
4. Waste oil storage tank for storage of used oil until the oil was sold to a scavenger company.
5. Kerosene used to clean cylinders when not in operation.
6. Salvage waste handling carts which hauled trash.
7. Waste paper handling equipment.
8. Trash baler motor starters used in the baling of waste paper.
9. Mail packs used in the shipment of original engravings to a publisher or another printer.
Rather than examine the legitimacy of the relationship of the above items and others to the production and preparation for market and sale of printed matter, the majority has created a sweeping exception from the Ohio sales tax for much of the equipment, parts and supplies used by Dayton Press.
Until now, this court has not retreated from the holding in National Tube Co. v. Glander (1952), 157 Ohio St. 407 [47 O.O. 313], that exceptions are to be strictly construed against taxpayers in order to ensure equality in the burden of taxation. The majority today turns this holding on its head by liberally construing exceptions against the taxing authority.
For the foregoing reasons I respectfully dissent.
LOCHER, J., concurs in the foregoing dissenting opinion.